The 3 Ways Governments Will Not Solve the Fiscal Crisis

Around the world, in every country, we have central banks which set the monetary policies of their respective countries. In times of crisis, like the world has been experiencing since last year, some banks may, for example, increase the amount of money circulating within their monetary system. This kind of monetary policy is, however, inflationary. The same amount of goods in the market, with more money in circulation, often sees prices increase—this is a bit of a chain reaction, because as some things get more expensive, all things tend to get more expensive. Our economy does not happen in a vacuum.

These same central banks also have fiscal policies, which is how governmental finance is managed. And in the wake of 2020, we’re actually seeing the full impact of how countries around the world have been irresponsibly managing their monetary and fiscal policies. While there are some responsible outliers, many countries have been spending more money than they take in, for years.

Just in the United States, we’re racking up debt on the higher end of $20 trillion. If individuals managed their finances the way the world’s governments handled theirs, they would have been out on the street a long time ago.

While some may say that the global pandemic has caused a lot of these economic issues, I’d say that the pandemic has exposed these issues, and further exacerbated them. And what was the response? To print trillions more dollars, only further inflating the economy.

How Can We Solve Government Bankruptcy?

While the economic issues have been pushed to the forefront this past year, not many solutions have been posed. And those that have been posed, are not realistic, no matter how practical they seem on paper. I’m going to talk about three of the most common proposals, and why they will NOT help our country solve this fiscal crisis.

1. Balancing the books

Of course, the first thing our government and others could do is to balance their budget, get spending under control, and establish more responsible habits. Unfortunately, I know that we will not solve the crisis this way because of the current track record. After all, one of the best ways to gauge future performance is to look at current and past behavior. If there have been changes in behavior along the way, or there are signs of growth and commitment to change, then we could reasonably expect it to happen again. On the other hand, when an entity has an incredibly consistent record of behavior, it’s hard to imagine that changing any time soon.

Governments do not know how to manage their money responsibly. They don’t know how to balance their books, and chances are they are not going to because that has never been an established practice. And yet, we hear it at every election—no matter who the politician is, we hear empty promises of a balanced budget. Yet do we ever get it?

2. Taxing people more

The next thing, our government can’t do, is tax people more. The government is in financial trouble, so all they can really do is increase taxes and redistribute other people’s resources. Government’s themselves don’t produce a product, or create anything; instead, they take from others. And we’ve already seen tax hikes in states like California, New York, and Illinois. Those three states are trying to solve the problem by taking in more money, and what are people doing in response? They’re leaving.

We’re seeing a mass migration in the United States, one of the biggest we’ve ever seen. People are leaving these three states in particular en masse and leaving for states like Texas and Florida that treat them better.

Elon Musk, for example, is moving Tesla to Texas. Goldman Sachs is moving their asset management division to Florida. Companies and individuals alike are leaving, because all the government Is trying to do is take money from people who are producing and creating value. The problem will continue to snowball as people relocate and find new ways to save on taxes.

3. Creating more money

Lastly, we will not escape this fiscal crisis if the government continues to print more money. Unfortunately, it seems like more money will continue to be printed, only sinking us further in debt and inflating prices dramatically. Pumping money into the stock markets and sending out stimulus checks is a temporary fix, and will only devalue the money of those who receive it.

Think of it this way. If everyone in the country were to receive $1,000 a month (an actual proposal in the last Presidential race), we would all have an equal starting point. On paper, that might seem desirable to some. In reality, it would be the same as everyone having $0, because there will still be some who far out earn that amount dozens of times over, and some who don’t make a penny more. In the short term it would be great, and in the long-term we’d be no better off than we were before.

In fact, the wealthy have ways of benefitting and profiting off of this inflation, which could only widen the gap. Creating more money is like slapping Duct Tape over a leak—and we need something with more integrity than that.

You can listen to my new podcast, Cashflow Investing Secrets here.

Live your Freedom, Live Your Legacy, On Your Own Terms,

M.C.

M.C. Laubscher is a husband, dad, podcaster & Cashflow Specialist. He helps business owners and investors create, recover, warehouse & multiply cashflow. You can learn more about exclusive cash flow strategies in M.C.’s new video series at https://www.yourownbankingsystem.com/